Temptation - Do I or Don't I?

July 16th, 2013 at 06:01 am

Despite the variability in our income, I am pretty good at projecting it out. I have reached the point where I know by December we will have enough to pay the car loan in full. If I do, one of the Roths will need to be funded in the beginning of 2014 instead of December 2013.

The benefit is that a payment of $409 would immediately disappear. Its the last of my non-mortgage debt (come December). The con is that it delays building the EF and delays putting money in the Roth.

Really it doesn't matter tremendously either way. It is more a psychological victory than anything. It would certainly fit with the theme of 2013 as debt payoff year.

On the other hand, I am wondering what I have against saving up cash. This would not be the first time I delayed building a more robust EF (we have a small one built in to the budget already) in order to payoff low interest debt. Maybe I just really hate monthly payments, hmmm... I seem to have no problem saving to retirement accounts so its not that I can't save money.

I do think a part of it is that I like a simple budget and I like seeing big changes quickly. A car loan disappearing and then being able to save up more money quickly just works for me.

I figure I will probably debate it for a little bit and see how I feel come December.

6 Responses to “Temptation - Do I or Don't I?”

We are in a similar situation with our auto loan. Pay in full now and re-build the EF by December or keep EF intact and pay auto loan in full in December. I believe we are going for the latter, I rather have the $6K+ in the EF. 2014 budget just won't have the $325 auto loan! It is also our last loan until we just have the mortgage! Like you said, it would just be a psychological victory more than anything retiring the loan now!

Know yourself. I know that I'd be in for the win of paying the entire loan off. The loan interest rate is certainly not as low as your saving interest rate, so you are managing one inspiring thing against another, not inspiring thing.

I believe strongly in ample cash savings, but also believe in not having debt payments. I'd think that freeing up $409 per month would be most beneficial in the short run. Would you save that money to cash once car is paid?

Rob, cash in and of itself doesn't actually tempt me to spend. We have gone from keeping a "cushion" of $2k to keeping a cushion of $4-5k (read mini EF) because we don't like running low on cash.

Baselle's point is probably why I am so hesitant to have a lot in cash right now. It just doesn't make financial sense. However, an EF is more about comfort than profit.

Monkeymama, freeing $409 per month would feel good but doesn't really change our numbers significantly. Would that go purely to cash? Yes for the time being. Long term, part of our EF would be in a taxable investment account but as we have a roof and furnace to pay for sometime in the coming years, I would like that plus 3 months expenses in pure cash so I can shop around.

That said, all of these goals, including car loan payoff will be completed by the end of next year, its just a matter of order of priority. I am leaning towards car loan payoff in December this year though because its easy to check off my list.

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